Shooting from the Lip

O ne of the things that's wrong with mankind is a lack of excessive national pride.

That, we're well aware, is a heretical notion. The reigning view among geopolitical pundits is that there's far too much of the stuff, as evidenced by the global plague of bloody ethnic warfare.

But think on it: If countries were truly imbued with an overpowering sense of self, would they be so quick to share what gives them a certain distinction -- like the fruits of their profligacy?

Thailand, for example, back in 1997 had a golden opportunity to bask in the glory of being the only economic tiger in extremis. But it stubbornly refused to seize the chance to distinguish itself as a tiger of a different stripe by reveling in its newfound financial woes and guarding them jealously. Instead, it sought company for its misery, and before long, all the tigers were as moth-eaten as Thailand.

When it comes to national pride, the Thais could have learned something from the Japanese. For almost the whole of this decade, Japan's economy has been on the skids. But the Japanese never wavered in their determination to keep what ailed them all to themselves. And in so doing they became, if not the envy, at least the wonder, of the world.

Brazil, of course, is Thailand all over again. Far from relishing its plunging currency and tail-spinning economy and husbanding them as a national treasure that sets the country off from its neighbors as sharply as does its language, the Brazilians have been only too happy to willy-nilly spread the suffering around. Result: All of Latin America is beginning to look a lot like Brazil.

What's more, the 30% shrinkage in the value of the real has sent shock waves not only through Latin America but as far away as ... well, Thailand. The latter's exports of frozen chicken have been iced, Ed Hyman tells us, because of stiff competition from Brazilian frozen chicken, whose price has dropped precipitously, thanks to the devaluation of Brazil's currency. We'll refrain from so obvious an observation as chickens coming home to roost.

But it isn't only submerging markets that have been hurt by the failure of Brazil to keep its troubles to itself. The ugly fallout has been felt even in our fair and prosperous land. And specifically, it has engulfed so august a figure as philosopher-statesman-author-speculator George Soros.

Mr. Soros, when he isn't binding up the planet's wounds, runs a hedge fund, mostly for recreational purposes. One of his portfolio henchmen was recently chosen as the president of Brazil's central bank. Which inspired a torrent of E (for envy)-mail from people who, over the years, have been on the other side of George's trades. Those evil electronic missives alleged that the ex-employee-now-central-banker had leaked inside information to his old boss, enabling Mr. Soros to make a killing in Brazilian securities or frozen chickens (the malice-mongers were not clear which).

Recipient of these mean libels was Paul Krugman, whose day job is economist. Mr. Krugman is not one of your fat-cat Wall Street economists; so, to make ends meet, he has to moonlight for an Internet journal called Slate, whose corporate daddy is Microsoft, the well-known software supplier and antitrust defendant.

No doubt tuckered out after a hard day worrying about GDP, building econometric models and churning out forecasts, Mr. Krugman was in desperate need of material to fill his quota of Slate inches and relayed, untouched by human intelligence, the rumors of George Soros' insider trades in bonds or chickens. Mr. Krugman and Slate had a real scoop. 'Tis a pity it wasn't true.

Journalists are notoriously loath to let the facts get in the way of a good story. So we can sympathize with Mr. Krugman's tendency to shoot from the lip. Still, his sin was cardinal: He neglected to ask Mr. Soros or his former employee or even the security guard at the Quantum Fund whether the allegations were accurate.

A chastened Mr. Krugman, eager to make amends, has served up regrets and retractions. The episode illustrates graphically how economic calamity that is uncontained can have ugly repercussions in places and on persons far removed. It also, we suggest, raises a compelling concern for Bill Gates.

For it's one thing to have the government mad at you. It's quite another -- and much worse -- when your stock is selling at over 60 times earnings to have George Soros mad at you. Our advice to Mr. Gates: Whatever it takes, Bill, do what you have to -- and fast -- but wipe the slate clean.

L ast week, we passed along the intelligence, courtesy of a learned correspondent, that the market had fallen victim to a new medical procedure designed to reduce stock prices, called Lycosuction. Comes now word from Merrill McHenry, who labors for that estimable institution UMB Bank, that Lycosuction also causes widespread Dellirium.

The unwonted weakness in
Dell
, whatever the ostensible excuse, is visible evidence, we remain convinced, that the techs are topping out. Again, this doesn't mean there won't be rallies in the sector and stronger ones than the rather tentative recoveries mounted on Thursday and Friday. But it does mean that after an extraordinary pacesetting run these past three years, a stretch in which they exploded from accounting for less than 11% of the S&P 500 to an unprecedented 21%, the techs are now embarked on a long and slippery journey down the other side of the mountain.

We don't think the group is starting to roll over simply because of absurd valuations -- although ridiculously stretched multiples are certainly a factor. Rather, the phenomenal surge in demand for PCs, sparked in no small part by the masses' discovery of the Internet, is losing momentum. Absent gargantuan gains in sales, the eternal and merciless pressure on prices that is a constant for computers and the cunning stuff that goes into them could do very serious damage to profit margins.

The cooling of the techs has implications for the market as a whole, and not exactly positive implications. As those numbers cited above -- which we filched from the estimable Ed Yardeni's most recent commentary for Deutsche Bank -- make ringingly clear, the group has led the great trek upward since '96. Of late, moreover, it has been virtually alone in front of the pack.

That neat chart that adorns this page, also Ed Yardeni's handiwork, offers a bleak preview of what life in the stock market might be like without a booming tech group. It depicts the running total of stocks advancing versus stocks declining on Nasdaq, and, as you can readily see, the trend has been going steadily from bad to worse. The superficial gleam of the brilliant performances by the Intels and Dells and Microsofts and the Web wonders has been obscuring the relentlessly dismal performances of the unloved, suffering majority of stocks.

Ex a booming tech group, in short, life in the stock market these past three or four years would have been no fun, no fun at all. And no fun pretty well describes what life in the stock market is likely to be if the reversal we espy taking place in the sector is for real.

A s a P.S. we might add, in case it has escaped your notice, breadth on the Big Board has been atrocious as well. Even on Friday, when most of the averages managed a rise of some sort, more stocks were down than up.

The same melancholy snapshot of a market obviously in distress is furnished by the tally of new highs and new lows. On Thursday, for example, when the Dow rose more than 100 points and both the S&P and Nasdaq posted solid advances, there were 29 new highs compared with 146 new lows. On Friday, new lows were three times as numerous as new highs.

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